Turnbull to cross floor: read his full speech

Transcript of Malcolm Turnbull's Speech to the House of Representatives on the Carbon Pollution Reduction Scheme Bills 2010.

All of us are here accountable not just to our constituents but to the generations that will come after them and after us.

It is our job, as members of parliament, to legislate with an eye to the long term future, to look over the horizon beyond the next election and ensure that as far as we can what we do today will make Australia a better place, a safer place, for future generations to live in.

Climate change is the ultimate long term problem. We have to make decisions today, bear costs today so that adverse consequences are avoided, dangerous consequences, many decades into the future.

So it is always easy to argue that we should do nothing, or little, or postpone action.

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We are already experiencing the symptoms of climate change, especially with a hotter and drier climate in southern Australia - the rush to construct desalination plants is an expensive testament to that.

Climate change is a global problem. The planet is warming because of the growing level of greenhouse gas emissions from human activity. If this trend continues, truly catastrophic consequences are likely to ensue from rising sea levels, to reduced water availability, to more heatwaves and fires.

In December, just a few weeks ago, we had confirmation from three leading scientific organisations - the UK Met Office, and in the USA NASA and the National Oceanic and Atmospheric Administration - that the past decade - the years from 2000 to 2009 - was the hottest since record-keeping began, even hotter than the decade before (which are the second hottest decade on record) and the decade before that (which are the third hottest on record).

Climate change policy is an exercise in risk management. No reasonable person could regard the risk as being so low that no action was warranted.

That has been the view of political leaders for many years, from both sides of politics and none more eloquently than Margaret Thatcher herself.

Prudence demands that Australia acts to reduce its emissions and does so in a way that is consistent with and promotes global action to do the same.

Right now, both sides of politics are agreed that Australia should, regardless of whether any international agreement is reached, reduce our emissions by 2020 so that they equal a 5% cut from 2000 levels.

Climate change policy is an exercise in risk management. No reasonable person could regard the risk as being so low that no action was warranted.

This is a 21% cut from the 2020 business as usual levels.

Both sides of politics agree that depending on the nature of the international agreement reached, greater cuts of 15% or 25% should be made.

But it is not enough to say you support these cuts, you must also deliver a strong, credible policy framework that will deliver them.

In line with the Copenhagen Accord, the nations of the world are making commitments to reduce their emissions and those commitments will form the basis of the continued negotiations at Mexico City this year.

Australia should take action now in advance of and in order to promote a global agreement.

While our emissions are only a small share of the global total, we are in per capita terms one of the highest emitters.

But how can we credibly expect China, with per capita emissions less than a quarter of ours, or India with per capita emissions less than one tenth of ours to take our call for global action seriously if we, a wealthy, developed, nation are not prepared to take action ourselves?

The transition from a high emission economy to a low emission one cannot be achieved without major changes to the way we generate and use energy and in the way we manage our landscape.

This requires substantial new investment, especially in electricity generation which has increased by 45% since 1990 and represents more than half of our total emissions.

Decisions to build new power stations and replace old ones will involve tens of billions of dollars over the next few decades and a critical element in making those decisions is being able to form a view about the direction of carbon pricing.

Given that the cheapest fuels are generally the dirtiest, in the absence of a clear carbon price signal, new capacity is likely to be coal rather than gas, rather than renewables.

This need for leadership and direction from Government on carbon pricing was one that was apparent to the previous Government. That is why in 2006 Prime Minister John Howard established the Emissions Trading Task Group, chaired by Dr Peter Shergold, the Secretary of the Department of Prime Minister and Cabinet.

The Task Group also included leaders from the industries most directly affected such as transport, aluminium, mining, agriculture and power generation.

In 2007 the Howard Government adopted its recommendation to establish an ETS in advance of and in order to promote a global agreement and we began to introduce the necessary legislation.

As the Shergold Report noted:

"An Australian emissions trading scheme with a carbon price set by the market, would improve business certainty. This is particularly the case for projects with a high degree of carbon risk. There is growing evidence that investments are being deferred due to uncertainty about the future cost of addressing climate change. Without a clear signal on future carbon costs, these investments will not be optimised. There is a risk that a higher carbon profile will be locked in for the life of the capital stock."

Plainly stated: in the absence of a clear carbon price signal either no investments will be made or investments will be made of new carbon intensive infrastructure because they are more profitable in a world where there is no price on carbon.

An ETS works by setting a limit, a cap, on the amount of CO2 which the total covered industry sectors can emit. These industries are required to acquire permits to emit CO2 within the overall cap.

Note: the government does not set the price of carbon; it sets the cap on emissions and the rules of the scheme, and then it is up to the market, the laws of supply and demand, to set the price. It does not give quotas to particular industries or firms.

It does not give quotas to particular industries or firms - the cap is economy wide and is set at the level of emissions which will over the relevant period enable us to meet our target.

These permits can be purchased from the Government, or from other permit holders or can be offset by purchasing a carbon credit from someone, like a farmer, who is taking action which reduces atmospheric carbon.

Only a small number of businesses, around a thousand big polluters, will have to buy permits.

The direct impact of the ETS, therefore, for almost all Australians is via increased energy prices.

The NSW IPART estimates that in 2013, for example, the cost of the CPRS will comprise 15% of a typical retail electricity bill in NSW and it is estimated by Treasury, overall, that the CPRS will add about 19% to electricity prices.

The scheme will raise a substantial amount of revenue over the period to 2020 but it is not designed, nor should it be, to raise additional net revenue for the Government (as a tax does) since the funds raised by sale of permits will be returned to compensate lower income households and assist businesses, especially those which are emissions intensive and trade exposed, with the increase in energy bills.

The White Paper estimates the CPRS will result in a one off increase in the CPI by 1.1% - compared to the 2.8% one-off increase in the CPI caused by the introduction of the GST. Most households are compensated for this increase in costs either in whole or in part.

I should note that the largest component of increases in electricity prices in NSW over the next five years is, in fact, additional network charges to recognise the increased investment in the security and reliability of electricity infrastructure. Those increases, unlike the CPRS element, are not the subject of any compensation.

But given we have an apparent bi-partisan agreement that emissions should be reduced by 5% of 2000 levels, is an Emissions Trading Scheme, at a general level, the best policy to achieve the desired reduction in emissions?

Believing as I do, as a liberal, that market forces deliver the lowest-cost and most effective solution to economic challenges, the answer must be yes.

Because more emissions intensive industries and generators need to buy more permits than less intensive ones, lower emission activities, whether they are cleaner fuels or energy efficient buildings, are made more competitive.

A brown coal fired power station, for example, pumps out four times as much CO2 as an efficient gas fired one. But gas is expensive and clean and brown coal is cheap and dirty.

If there is no cost charged for emitting carbon there is simply no incentive to move to the cleaner fuel.

Until 1 December last year there was a bi-partisan commitment in Australia that this carbon price, this exercise in reducing emissions should be imposed by means of an emissions trading scheme.

At their core these bills are as much the work of John Howard as of Kevin Rudd. The policy I am supporting today as an Opposition backbencher is the same policy I supported as John Howard's Environment Minister.

And why did we, in the Howard Government, believe an emissions trading scheme was the best approach?

It was because we, as Liberals, believed in the superior efficiency of the free market to set a price on carbon.

As the Shergold Report notes:

"Market-based approaches have the potential to deliver least-cost abatement by providing incentives for firms to reduce emissions where this is cheapest, while allowing the continuation of emissions where they are most costly to reduce."

The Rudd Government's approach has broadly embodied the same principles, although there were problems with its initial design.

But extensive modifications were made to the CPRS in May 2009 and again in November 2009 (when changes reflecting further business and community concerns were agreed between the Government and the Opposition following the negotiations between Minister Wong and the Member for Groom and myself).

These changes have made it into a scheme that appropriately balances environmental effectiveness and economic responsibility.

In fact the proposed scheme very closely resembles the outlines of the Howard Government's original 2007 proposal, in both its incidence and timing.

And as we have seen in recent days, alternatives such as direct regulation or subsidies will be far more costly to the economy, no matter how hard their designers try to argue the contrary.

I quote again from the Shergold Report on this topic:

"An alternative to regulating emissions abatement is subsidising abatement activities from government budgets. For example, government could target specific projects, requiring estimation by government of additional abatement relative to "business as usual". However, if not carefully implemented, project-specific approaches can involve administrative overheads for both government and project proponents."

Under a market based mechanism, like an ETS, if a firm reduces its emissions intensity by acquiring more efficient equipment or, for example, by generating power from burning gas rather than coal, it will need to buy fewer permits per dollar of output.

There is a clear, transparent and immediate incentive - a clear price signal encouraging investment in lower emission technology.

However if a scheme operates whereby the Government pays the firm to reduce its emissions intensity, leaving aside its impact on the budget and taxes, there is firstly going to be a substantial and contentious debate about what the correct baseline is, then whether it will be actually be reduced.

Because most capital equipment, especially in the energy sector, has lives running into many decades, the business is going to require assurance that the government subsidy will match the life of the asset - so running well beyond 2020.

In other words any scheme has to have a lifetime which matches the lifetime of the investment - if Government wants business to make long term investments to lower emissions, its commitment must be long term as well.

Which is why a subsidy scheme which terminates in 2020 will achieve very little.

Arguments, of considerable ferocity, will arise as to whether a new piece of equipment would have been bought anyway with the risk that the Government ends up funnelling billions of dollars to companies to subsidise their profits without achieving any real additional cuts in emissions.

Now, all of us know in this House that industries and businesses, attended by an army of lobbyists, are particularly persuasive and all too effective at getting their sticky fingers into the taxpayer's pocket.

Having the Government pick projects for subsidy is a recipe for fiscal recklessness on a grand scale and there will always be a temptation for projects to be selected for their political appeal.

In short, having the Government pay for emissions abatement, as opposed to the polluting industries themselves, is a slippery slope which can only result in higher taxes and more costly and less effective abatement of emissions.

I say this as a member, and former leader, of a political party whose core values are a commitment to free markets and free enterprise.

The Shergold Report went on to say on this issue:

"Financing subsidies and specific project-based interventions also impose costs on society from their use of taxation. If these approaches were to be used extensively to achieve large-scale abatement, the economy would suffer losses in economic and administrative efficiency. In contrast, market based approaches to emissions abatement involve the explicit pricing of emissions, allowing the market to determine the cheapest source of emissions reduction."

As the Productivity Commission observed in its submission to the Garnaut Review in 2008:

"Unlike prescriptive command and control approaches, an ETS leaves it to producers and consumers — who have better information about their own production costs and preferences than governments — to work out the most cost-effective way to reduce emissions. In this way, the targets are most likely to be achieved at lowest cost to the economy and community."

Before I leave the question of non-market based approaches to emission reduction, I want to note that I was very pleased to see the recognition of soil carbon, carbon forestry and biochar in the Coalition's alternative policy.

One of the key achievements of our negotiations with the Government last year about the CPRS, of course, was to secure the recognition of this type of agricultural offset the potential for which, as I have argued for some time, is very considerable.

However, there are a couple of points I should make about soil carbon in particular.

While it is possible to increase the level of organic carbon in soils by changing the management of the land in question, it is quite another thing to ensure that this increased carbon level is permanently maintained.

Soil carbon levels fluctuate with the season, with rainfall and of course depending on the use of the land.

There is a great prize there, but before billions of dollars are invested in soil carbon credits there is considerable work required to agree on appropriate measurement and management methodologies.

Now if, in fact, there are hundreds of millions of tonnes of very low cost agricultural offsets capable of generating carbon credits, then they are all potentially available in this ETS, and the CPRS proposed in this legislation, will lower the cost of permits.

In other words, if polluters can buy carbon credits for $10 a tonne from farmers, permit prices will adjust down to that level.

And of course, the great virtue of a market based scheme is instead of the Government decreeing what the best and cheapest offsets are, the participants in the market do this themselves.

That is why once agricultural offsets are recognised under an ETS, and that is the plan with this legislation, there is an enormous potential for farmers and other landowners to generate real revenue.

However it should be noted until these offsets are recognised internationally, they will not be of assistance in meeting our 5% 2020 target.

As one of the leading Australian biochar advocates wrote to me the other day:

"While I worked in Government for a significant part of my life I am horrified by the prospect of a "fund" from which public servants give handouts to grow trees -it just does not work -we have to have a market price and a market system .".

Is this ETS, proposed in this bill the right design and is this the right time to act? The answer here too is yes.

Most other large emitters have also committed to substantial quantitative reductions in their greenhouse gas emissions over the next decade. And many have already acted to achieve those targets.

The EU has had an ETS since 2005, and in Phase Three of its scheme is enforcing it with increasing stringency.

In line with the Copenhagen Accord, China has committed to a 45 per cent reduction in emissions per unit of output by 2020 and the Chinese are already investing massively in cleaner energy sources (both of which point to a 'shadow' price on carbon already in force across the Chinese economy).

And I note the Chinese commitment is to reduce emissions from their "business as usual" rate - they recognise that business as usual is not good enough and that they must reduce their emissions intensity and then reduce the absolute level of emissions.

Japan has pursued lower emissions and higher energy efficiency for three decades. Brazil has committed to lowering its emissions by more than a third as against its projected, business as usual 2020 emissions. I note again that our commitment to reducing emissions by 5% from 2000 levels is equivalent to a 21% reduction from our projected 2020 emissions without a CPRS.

While Copenhagen was disappointing it did nonetheless for the first time see the developing nations, particularly major ones such as China and India make commitments to reduce their emissions. That was an enormous breakthrough. There is a global commitment to act so as to keep temperature rises this century below 2 degrees Celsius.

Now the notion that this ETS would put Australia out in front of the world is, sadly, and I wish it were not so, sadly, completely wrong. Far from being in front of the world in action to reduce emissions, we start way behind because our per capita emissions are so large, because our sources of energy are so overwhelmingly dependent on burning coal.

And we should not forget that when the Howard Government committed to an ETS in 2007 the world was much further away from concerted global action than it is today. Indeed the Shergold Report noted that "the prospects for comprehensive global action in the near future look poor."

But the Shergold Report in recommending an ETS observed that:

"..waiting until a truly global response emerges before imposing an emissions cap will place costs on Australia by increasing business uncertainty and delaying or losing investment."

Mr Speaker, this legislation is the only policy on offer which can credibly enable us to meet our commitment to a 5% cut to emissions by 2020 and also has the flexibility to enable us to move to higher cuts when they are warranted.

So for these reasons Mr Speaker, I support this Bill. The arguments I have made for it are no different to those I have made, and stood for, for the last three years.

During my time as leader of the opposition I defended the right of my colleagues, from time to time, to cross the floor and vote in accordance with their strongly held personal beliefs. It is one of the long-standing principles of the Liberal Party, unlike the Labor Party,

I commend the courage of my colleagues Senator Troeth and Boyce who crossed the floor to support this Bill and effective action on climate change late last year.

The importance of this issue, the expectations that Australians have that their parliamentarians will lead on it, the fact that the ETS being considered is nearly identical to the proposal put to the electorate by the Howard Government in 2007 and my strong and long-standing personal commitment to effective action on climate change make it impossible for me to vote against this bill, amended in terms as agreed between the coalition and the Government last year.

The proposed ETS is a balanced, substantive and timely step forward on an issue of immense importance. And by relying so heavily on market forces to address this challenging problem, the ETS is far more in the great traditions of modern Liberalism than any other available policy response.

After all, I have always believed that we as Liberals reject the idea that Government knows best and embrace the idea that Governments job is to enable each of us to do our best.

The ETS allows Australian businesses to make their own decisions as to how to reduce their emissions - Government sets the rules and in part sets the cap on total emission and then lets the market work out the most efficient and effective result.

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Schemes where bureaucrats and politicians pick technologies and winners, doling out billions of taxpayers' dollars is neither good policy is neither economically efficient and nor will it be environmentally effective.

For these reasons, Mr Speaker, I will be voting in favour of these Bills.